In short, the concept that there is a battle between free market capitalism and Soviet style Socialism is wrong headed, because it ignores the third, more venomous entity, which is corporatism, or crony capitalism, whereby the powerful and connected entities merge forces with the State to destroy the competition of the free market- in short, ensuring that the market becomes not free, but rigged in favor of a select few.

In the American Enterprise Institute’s current issue, Brad Delong makes some insightful comments on crony capitalism, quoting at length from Prof. Luigi Zingales’ article in Foreign Affairs, “Capitalism After the Crisis”. Likewise, Simon Johnson’s article “The Quiet Coup” regarding his experience at the IMF, compares the US economy to the banana republics and Third World oligarchies that he dealt with.

Liberals who rail at “capitalism” or the “Wall Street Bankers” miss the picture; Tony’s Pizza on Main Street is not oppressing anyone; Tony probably provides an example of freedom and upward mobility that liberalism only talks about. And Lehman Brothers was as much a Wall Street player as anyone; but Lehman didn’t have Goldman’s Washington connections as pointed out in Matt Taibbi’s Rolling Stone piece  .

But conservatives who strain to pin all economic ills on government regulators and bureaucracies or who defend private corporations as proud John Galtian heroes likewise overlook the willingness of the business community to destroy the very capitalism they claim to defend.

Probably nowhere is the pernicious effect of corporatism seen than in government contracting. Someone once asked the bank robber Willy Sutton why he robbed banks. He is said to have replied, “because that’s where the money is.”

Government contracting is where the money is. Everything from military procurement, to road construction, to accounting- it is all contracted out by federal state and local jurisdictions, sometimes with capable oversight, but often without.

The recent ACORN scandals inadvertently point this out; shutting off the flow of funds to fraudulent contractors will have the effect of shutting down the entire military procurement system. It is not disputed that many military contractors- Halliburton, DynaCorp, Blackwater, Boeing, McDonnell Douglas- have defrauded the government time and again.

Likewise, no matter who comes or goes in Washington- liberal or conservative, Democrat or Republican, it is a fact that the Treasury Department will be staffed by Goldman Sachs alumni, who all are waiting until the day they can return to their natural home on Wall Street.

For anyone who views the capitalist system as offering freedom and opportunity, corporate America must be regarded with suspicion and skepticism. Not reflexive opposition, not antagonism, but healthy skepticism. Corporations do not have principles, they do not have ideals, they do not have beliefs. They only have interests which must be served. Patriots and citizens must have principles first and foremost.

There are plenty of ways to pursue capitalism without surrendering to private corporate interests; the best way to begin is to demand full transparency in government’s dealings with private interests such as Goldman, ACORN, and Halliburton. “No Bid” or secret contracts, revolving doors of consultancy, are all an open invitation to a cesspool of corruption and favoritism. The concept of “too big to fail” should mean “too big to exist.” Any entity that has a unilateral ability to destroy the nation’s economy should, by definition, be broken up into smaller more competitive units.

Mostly, we need to recognize that there are other choices between liberal special interests and business special interests.

However, there needs to be more attention paid to the Patriot Act, when combined with what I see as a general trend towards the enlargement and intrusion of government into Americans personal lives.

For instance, many are worried that conservative groups may come to be considered “terrorists”; however what is even more disturbing, is that the government is even now, conducting huge datamining operations of domestic spying.

In September, Wired magazine documented this collaboration between hotels and the FBI to turn over guest information.

In the NY Times Review of books, James Bamford discusses this facility being built by the NSA in Utah which is to be used to vacuum up massive amounts of receipts, emails, phone records and the like.

Renewal of the Patriot Act allows for the government to access phone records to record meta-data such as phone numbers called and received; what is not clear is how much information it stores regarding email and text messages sent or received. Just today, Wired documented again that the telephone companies are openly acting in close collaboration with the FBI to monitor and record phone traffic.

Ordinarily, in order to obtain this sort of information, the government is required to obtain a warrant; the entire purpose of warrants was to ensure that there is some neutral third party oversight of government action. The Founding Fathers didn’t trust the executive branch to have unlimited power to search or incriminating evidence on the citizens.

In the wake of 9/11, the power of the government was massively enlarged, on the premise of protecting us from foreign terrorists; yet these tools are not aimed at foreign agents nor are they only to be used abroad. These are information gathering tools that are intended to be used on American citizens, with little or no judicial oversight. The much-discussed FISA courts have been rendered largely neutered.

The possibility for liberty- crushing mischief if tremendous; there is nothing to prevent the government from using these powers to go after political enemies, or crush dissent, or punish groups with which it disagrees.

The word “disturbing” is putting it mildly.

Unlimited power to protect us is unlimited power to oppress us.

There needs to be an immediate outcry that the government has grown too large, too intrusive, and far too powerful. For 200 years, through wars and insurrections, even after British troops marched through Washington and burned the White House, the principle has stood that no power should be unchecked, that the police power of the State must be balanced by the judiciary.

Forcing the government to show evidence and get a warrant does nothing to reduce the power to protect the nation; it only ensures that we the citizens are protected from the very government that we rely upon.

I believe this is still a good approach and a sound idea. I would put forward that the conservative movement must grasp the issue again, and take the leadership on returning the government to fiscal balance and sanity.

I have based all the figures in this entry on the federal budget shown on the WallStats “Death and taxes chart-

 http://www.wallstats.com/deathandtaxes

  it is truly a terrific graphic visual for how the government spends money.

First, the basic facts:

The total income for the fiscal year 2010 federal government is $2.333 Trillion. The total spending is $3.591 Trillion. The budget deficit then, stands at 1.405T, or more than a third of the total budget.

Of the $3.591 Trillion, 1.421 Trillion is discretionary, able to be cut. The remaining $2.17 Trillion goes for Social Security, Medicare/ Medicaid, interest on the debt, and so forth. The biggest portion of this is Social Security/ Medicare/ Medicaid accounting for about $1.3 Trillion of the $2.17 Trillion.

The federal discretionary budget for FY 2010 is $1.421 Trillion; It is broken down into military spending $901 Billion (62%) and non-military $520 Billion (38%).

Now for some conclusions:

Any discussion about fiscal conservatism must begin with a desire to balance the budget, to erase the yawning chasm between income and outlay. As long as budget deficits are considered acceptable, they will only grow larger, until the day of reckoning.

There are really only three alternatives- the budget gap can be erased by higher taxes, lower spending, or a combination of the two. I am not including ideas such as a rise in tax receipts, or sudden drop in Medicare spending, since those are highly unlikely. A sudden expansion of the economy will produce higher tax revenue; but it jis just as likely that a recession could follow, wiping out whatever gains the boom produced. It is wiser, more prudent, and more conservative to budget according to the facts on the ground, not on a fortunate turn of events.

So lets suppose we try the first notion- raising taxes. Is it possible to wring another $1,405,000,000.00  out of the economy? Even if the political will were there, I doubt it would be feasible- A surge of taxes on that order would act as a drag on the economy, and could actually backfire and produce another recession.

So lets turn to spending cuts. Where would we cut $1,405,000,000.00  from the federal budget? How do we cut 1/3 of federal spending?

First, the budget deficit can’t be erased simply through discretionary spending- The entire discretionary budget (including Defense) accounts for less than the deficit.

It is also clear that cutting non-discretionary spending means cutting Medicare/ Medicaid, since they account for more than half of non-discretionary budget.

So any spending cuts will have to involve discretionary spending. And there can’t be any discussion of spending cuts without looking at the military budget because it consumes 63% of the discretionary budget

Or to put it another way, fixating on the pennies we spend on the NEA, National Park Service, and bridges to nowhere is absurd, compared to where the money really is, which is Defense, Medicaid/ Medicare.

So this explains one thing- it explains why no political party or movement or individual has been able to reconcile budget income and outlay since Eisenhower. The three biggest expenses of the federal government are also the three most popular, and the most resistant to cuts. Even if, by some miracle, all spending other than Defense, Social Security, Medicare and Medicaid were to be eliminated- zeroed out, cut entirely- the government would still spend about $2.3 Trillion, compared to the $2.333 Trillion of income.

So the task for anyone proposing to carry the banner of fiscal conservatism will be to put forward a set of budget priorities that leads to erasing the massive deficit, either through increased taxes, reduced spending, or some combination thereof. In reality, there will need to be a combination- there just isn’t any way to kill such a massive beast through one silver bullet.

Needless to say, this is not going to be a happy discussion; it will be painful, and require adjustments to priorities on every side;

I have my suggestions, which I will put forward in another entry. But I think the first step for conservatives will be to simply acknowledge the task ahead, and decide to take the leadership on it.

One painful truth that the conservative movement needs to confront is fiscal discipline, or the lack of it; I think it is fair to say that the conservative movement in general and GOP in particular, have abandoned fiscal conservatism.

By fiscal conservatism I mean a balanced budget. Does anyone remember how Reagan barnstormed through the country all during the 70’s expounding on a balanced budget amendment to the Constitution? For a while it was the favorite topic of conservatives. However, once in office, he abandoned that, in favor of tax cuts and a military build-up. Maybe good things, but still, we have been living with deficit spending ever since. No Republican at any level of government has made a serious proposal to balance the budget since 1981.

Instead the movement was seduced by the snake oil of supply side economics, or the Laffer Curve, which put forward the notion that cutting taxes will raise revenue. This can be true, but only in very limited circumstances, and only in modest doses. For anyone who thinks otherwise, I would ask- where is the real world proof of this? Reagan cut taxes, and ended up with a budget deficit every single year; so did Bush I; and Bush II; the latter is especially painful, given that the GOP held all the mechanisms of government for much of the time.

This was called “Voodoo Economics” by Bush I, and rightly so; it is just the conservative version of the “free lunch”, where we can enjoy low taxes, and high spending. But, some may protest, there were mitigating factors- a recession, a war….but hasn’t this always been the case? More importantly, won’t it always be the case? The future is uncertain, but what we do know with certainty is that there will always be a recession waiting for us, and a war or disaster to consume emergency funds. Running deficits year after year, praying for another dot-com or housing bubble to inflate the treasury is madness. The Republicans made a Faustian deal with the Dems- the Dems get ever-higher spending, which is popular, and the Republicans get tax cuts, which are also popular, and they both walk away happy. Except that this is leading to economic suicide somewhere down the road.

I think if the conservative movement wants to really be taken seriously, they need to get serious and discuss what it would take to restore fiscal sanity to the government. The Republicans used to be the “green eye shade guys”, the grownups who were sober and sane, telling the Dems that there is no free lunch.

I think we need to stop the fixation on tax cuts- Federal marginal tax rates are actually lower now than they have been in a generation- and stop tolerating pork projects. Pork, by the way, includes a very large chunk of military spending.

This is a deeply unpopular position, I know- nothing screams “electoral loser” like a proposal to cut spending AND/OR raise taxes.

However, the good news is that there is a growing unease with deficit spending, and the time may be right for a case to be made that we would be better off with a combination of spending cuts and higher taxes, than the alternative which is economic collapse.